Real Estate Vulture Funds -- The Next Big Investment Idea?
Is now the time to invest in real estate? That's a hard question, but the answer might be to keep an eye out for a real estate-based vulture fund that allows small investors.
Vulture funds are financial organizations that specialize in buying securities in distressed environments or buying equities that are in or nearly-in bankruptcy. Metophorically, they are like vultures circling a dying company, industry segment or even a third-world country with a lot of debt, then they swoop in and pick at the bones to see what's left that may be profitable.
Traditionally, vulture funds have been the domain of highly sophisticated, well-funded investors or institutional investors who are willing to assume sizeable risks in the hope of obtaining stunningly high returns. Vulture funds, as you may recall, bought up huge portions of the public debt in Argentina a few years ago, then made about a 20 percent profit during the Argentine ecomonic crises of 2002.
Vulture funds have not been the place for the average real estate investor who owns a few rental houses or an apartment building or two. Rather, it has been the place for really wealthy individuals and institutions who have millions to invest and can hold that investment position for years while circling a dying industry. To play in this game you have to be as patient as, well, a vulture.
In the last year or so, thousands of small, part-time investors dabbled in real estate. Many of these people are now facing financial problems caused by overextending their credit or they lack the needed funds to close on those pre-construction condo deals that can no longer be "flipped". Frankly, there's likely going to be a lot of distressed property on the market that can probably be purchased at or near it's original "pre-construction" price just to get the speculator clear of the property.
This is where a well-capitalized vulture fund might thrive. A vulture fund, operating similar to a mutual fund with investor money, might swoop down and start buying up these distressed properties in the hope of holding them for a year or two or three and then selling them for a profit which would be returned to their investors and shareholders.
Far fetched idea?
It's probably closer than you think.
Real estate analyst Jack McCabe has formed McCabe Acquisitions, LLC. His company is seeking accreditied investors of high net worth, international investors and other entities to participate in his vulture fund as non-managing members. The minimum investment is $5-million and investors should be prepared to hold the investment for up to ten years. McCabe's plan is to acquire blocks of condos -- or even entire condo projects. He is counting on buying from anxious sellers who will be willing to sell at a discount. After that, it's just a matter of time while the markets improve. History is on McCabe's side since real estate prices have historically appreciated over time. As humorist Will Rogers said many years ago, "Don't wait to buy real estate. Buy real estate and wait." Thus, McCabe's ten year waiting period for investors seems like a wise decision.
Here's my theory. If McCabe's vulture fund starts working for high dollar investors, someone else will likely come along with something similar for investors of more modest means -- perhaps even a Real Estate Investment Trust (REIT) of sorts that will function as a vulture fund for the rest of us. If so, this might be the next good way to become a real estate tycoon with one great advantage -- you won't have to worry about property management or tenant relations.
So, if you're searching for the next big real estate opportunity, you might want to talk to your investment advisor rather than your real estate broker. Ask him to keep an eye out for an affordable real estate-based vulture fund. If there isn't one out there now, I'm willing to bet there will be one soon, and it just might pay off handsomely.
For more information about real estate activity in the Tampa Bay area, please visit my website at www.thestpeterealestatesite.com.
Vulture funds are financial organizations that specialize in buying securities in distressed environments or buying equities that are in or nearly-in bankruptcy. Metophorically, they are like vultures circling a dying company, industry segment or even a third-world country with a lot of debt, then they swoop in and pick at the bones to see what's left that may be profitable.
Traditionally, vulture funds have been the domain of highly sophisticated, well-funded investors or institutional investors who are willing to assume sizeable risks in the hope of obtaining stunningly high returns. Vulture funds, as you may recall, bought up huge portions of the public debt in Argentina a few years ago, then made about a 20 percent profit during the Argentine ecomonic crises of 2002.
Vulture funds have not been the place for the average real estate investor who owns a few rental houses or an apartment building or two. Rather, it has been the place for really wealthy individuals and institutions who have millions to invest and can hold that investment position for years while circling a dying industry. To play in this game you have to be as patient as, well, a vulture.
In the last year or so, thousands of small, part-time investors dabbled in real estate. Many of these people are now facing financial problems caused by overextending their credit or they lack the needed funds to close on those pre-construction condo deals that can no longer be "flipped". Frankly, there's likely going to be a lot of distressed property on the market that can probably be purchased at or near it's original "pre-construction" price just to get the speculator clear of the property.
This is where a well-capitalized vulture fund might thrive. A vulture fund, operating similar to a mutual fund with investor money, might swoop down and start buying up these distressed properties in the hope of holding them for a year or two or three and then selling them for a profit which would be returned to their investors and shareholders.
Far fetched idea?
It's probably closer than you think.
Real estate analyst Jack McCabe has formed McCabe Acquisitions, LLC. His company is seeking accreditied investors of high net worth, international investors and other entities to participate in his vulture fund as non-managing members. The minimum investment is $5-million and investors should be prepared to hold the investment for up to ten years. McCabe's plan is to acquire blocks of condos -- or even entire condo projects. He is counting on buying from anxious sellers who will be willing to sell at a discount. After that, it's just a matter of time while the markets improve. History is on McCabe's side since real estate prices have historically appreciated over time. As humorist Will Rogers said many years ago, "Don't wait to buy real estate. Buy real estate and wait." Thus, McCabe's ten year waiting period for investors seems like a wise decision.
Here's my theory. If McCabe's vulture fund starts working for high dollar investors, someone else will likely come along with something similar for investors of more modest means -- perhaps even a Real Estate Investment Trust (REIT) of sorts that will function as a vulture fund for the rest of us. If so, this might be the next good way to become a real estate tycoon with one great advantage -- you won't have to worry about property management or tenant relations.
So, if you're searching for the next big real estate opportunity, you might want to talk to your investment advisor rather than your real estate broker. Ask him to keep an eye out for an affordable real estate-based vulture fund. If there isn't one out there now, I'm willing to bet there will be one soon, and it just might pay off handsomely.
For more information about real estate activity in the Tampa Bay area, please visit my website at www.thestpeterealestatesite.com.
-30-
posted by Terry Ward at 4:21 AM
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